On a Certain Day in February 2008, Amazon

question 27

Multiple Choice

On a certain day in February 2008, Amazon.com's forward P/E was reported to be 32.31 and its beta was 3.04. The relevant risk-free rate at the time was 3%. Assume that 5% is a reasonable
Equity premium to use. What does this data suggest Amazon's expected eternal earnings
Growth rate was?

• A)15.2%
• B)35.9%
• C)21.2%
• D)13.8%

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Definitions:

Percentage Return

The profit or deficit achieved on an investment over a designated duration, measured as a percentage of the investment’s initial value.

Bond

A fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a variable or fixed interest rate.

Capital Gains Yield

The change in the price of a security or investment over a specified period, excluding dividends, expressed as a percentage of the investment's initial price.

Total Return

The overall return on an investment over a specific time period, including both capital gains and dividends or interest, expressed as a percentage of the investment's initial cost.